05-16-2009, 11:55 AM
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Taxable Income Question on Settlements
If I negotiate a settlement with a creditor on my own - say 40 cents on the dollar - do I have to pay income tax on the amount the creditor will be charging off?
If I do, does anyone know if he pays income taxes on that same amount that he will be charging off? Thanks ..... 
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05-16-2009, 11:07 PM
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Well from what I have read and been told by my CC company they will file a 1099 with IRS on anything over $600. Those numbers could be wrong but they do file with the IRS. Say you owe $20k and you settle for $5k, thats 15k worth of money you got to spend and now are not paying off. They way I understand it is the 15k will get reported to the IRS and you have to add that next year to your earned income. If I am wrong I sure someone here will point that out and give the correct info.
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05-17-2009, 05:55 AM
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Yes creditors are required to report the forgiven part to the IRS. There are insolvency guidelines that pertain to this. I actually had some creditors not report this.
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